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This article focuses on the role of community in industrial clusters and examines social networks among small and medium-sized enterprises in Tiruppur, a centre for the production of cotton knitwear, and Ludhiana, known for the production of woollen knitwear. This survey of Tiruppur and Ludhiana reveals that credibility is more important than community. Factory workers could become owners in Ludhiana, and non-Gounders—who are part of the cotton knitwear production in Tiruppur and persons outside Ludhiana’s merchant community—could start micro factories as subcontractors. Vertical cooperation is functioning across communities in both places. The social networks did not exclude other communities. Easy entry has provided opportunities to young people to start business in both clusters. The social networks function beyond community and caste.

Value chain governance in the automobile industry changed as the latter developed. When Maruti started operation in 1983, it was a turning point in the passenger car market. Prior to this, there was a tendency for the assemblers of automobiles to produce parts and components in-house. The "tierisation" of subcontracting evolved from the operations of Maruti. Value chain governance in the industry shifted from integrated firms to captive units. With economic reforms, the subcontractors of Maruti began supplying their products to other assemblers too. The transformation was from captive value chains to relational value chains. Small and medium enterprises manufacturing auto-components that started business in the 1980s and the 1990s have grown. In the process, small enterprises have expanded to become medium and large enterprises. But in spite of a rapid growth of production, new entrants to the auto-component industry declined in the 2000s. The necessity of high technology led to a significant hike in the initial investment required and raised barriers to entry. But the existing SMEs actively set up new units.

In India, the backward linkage is the most efficient channel of technology spillovers from multinational enterprises. Although mnes brought their subcontractors from their home countries during the 1980s, they started procurement from local suppliers to meet the targets of local content. Local suppliers accumulated relation-specific skills through subcontracting. As the domestic demand expanded rapidly in the 1990s, production volume exceeded the level required for subcontractors to secure economies of scale. More foreign assemblers and component manufacturers entered the Indian market. Strengthened competition encouraged foreign and local assemblers to improve supply chain management. The econometric estimation in this paper finds a significant and positive correlation between improvement of labour productivity of suppliers and total factor productivity growth rates in six machinery industries. The result of the estimation confirms the effects of backward linkage. Rapid expansion of domestic demand and competition are determinant factors of development of subcontracting. But the range of subcontracting is limited to a part of the organised sector.

This paper discusses the possible reasons for the boom in industrial investment in the first half of the 1990s, in the wake of the relaxation of industrial regulation and controls, and why the boom petered out after the mid-1990s.